Home Gold Price Why It’s A Fit For The Legendary Value Investor

Why It’s A Fit For The Legendary Value Investor

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Berkshire Hathaway

BRK.B
in the 2nd quarter picked up a nice chunk of a New York Stock Exchange traded gold mining stock, according to whalewisdom.com, which keeps track of the holdings of big institutional investors. Warren Buffett’s firm bought about 21 million shares of Barrick Gold.
The Omaha legend is not a market timer as such, but his timing on this one is looking unusually good. Buffett and his long-time associate Charlie Munger are known for their value investing approach — an out-of-favor method on Wall Street these days where growth stocks are venerated, celebrated and purchased.
Berkshire’s timing on the gold sector makes me think they’ve actually been looking at price charts which value investors are often said to dismiss and ignore as largely irrelevant.
Gold the metal, for example, looks like this on a weekly price basis:

Gold daily price chart, 8 14 20

stockcharts.com

See how it rallied off of the March sell-off lows, rallied into April and then went sideways for the rest of the 2nd quarter? See how this is just before the breakout upwards? Some of that has been given back this week, of course, but the up trend remains in place.

Barrick Gold, whose shares were added to the Berkshire Hathaway portfolio in the 2nd quarter, looks like this:

Barrick Gold daily price chart, 8 14 20.

stockcharts.com

The stock participated in the rally of the underlying metal, although it’s not quite clear if the investment firm might be showing a profit in the position yet. Since they’re value investors and the long-term is what counts, this is not considered a big deal.
The price/earnings ratio for Barrick Gold is 11 which puts it substantially below the Schiller p/e for the S&P 500 sitting at 31 right now. To compare and contrast with hot big name growth stocks: Amazon

AMZN
’s p/e is 121 and Tesla

TSLA
’s is 849, just to pick out 2 popular well known NASDAQ

NDAQ
favorites.
Barrick’s “peg ratio” is .82 — that’s the price/earnings ratio divided by the miner’s expected earnings. Coming in at less than 1.0 puts it in the company of the “undervalued.”
Earnings have been solid for Barrick: excellent, in fact, for this year and very good over the past 5 years. The stock trades at 2 times book, higher than perhaps Benjamin Graham might pay, but definitely in the value stock realm, especially when compared to book value of growth stock names.
What else is likable about Barrick if you’re an old-fashioned value investor? Well, it pays a dividend: 1.04%. Not a spectacular amount, to be sure, but re-assuring and comfortable to a fund like Berkshire Hathaway, no doubt.
That the stock is highly liquid with an average daily volume of almost 18 million shares makes it relatively easy to get in and out of for the large investor. Buffett and Munger must feel relaxed about owning a mining firm that trades big volume on the New York Stock Exchange.
Stats courtesy of FinViz.com.
I do not hold positions in these investments. No recommendations are made one way or the other.  If you’re an investor, you’d want to look much deeper into each of these situations. You can lose money trading or investing in stocks and other instruments. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor.



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